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Independent view

The UK household savings ratio has fallen to its lowest level since 1988. True, at the same time, the Bank of England tells us that “windfalls” of nearly £37bn were paid out by demutualising building societies and insurance companies.

However, demutualisations are treated in the national accounts as increasing wealth rather than savings.

We have a reported savings gap of £27bn. Despite comments to the contrary, there is not just one single reason some of the public are not saving enough. There are certainly more reasons than the need to simplify products.

Identifying the problem would be a good start. It seems to me that you cannot have high debt and high savings.

In London, the average price of a house is £195,000. Is it any wonder that people in London and elsewhere cannot afford to buy or go into considerable debt to do so? The lenders will help, of course, lending around 3.5 to five times income. In June, mortgages of £10.5bn and remortgages of £5.6bn were finalised.

Marks & Spencer Financial Services&#39 Borrowing Britain report shows that four out of 10 people currently have some form of unsecured borrowing, including personal loans, credit or store cards and bank overdrafts. The average unsecured borrowing is £4,350.

The report also tells us that £11bn is borrowed for home improvements. Nearly three million adults in the UK are borrowing money to finance home improvements, spending on average £5,960. Is this their way of investing?

Many students spend three years at university, only to end up with student loan debts of £10,000 or more to repay before they can think of saving. What should be the time to educate our young people to save is totally screwed up.

The FTSE falls. There is concern about Equitable and the falling free-asset ratios of some other companies contributes to uncertainty as to how to invest a spare £100 a month or an inheritance.

Do we think Maxwell, BCCI, Polly Peck, Enron and WorldCom created a loss of confidence and that it is better to spend now? “Heck, I could do with a new car, a DVD player, a holiday.” The market should be more competitive, they say. Certainly, the cost of distribution is too high. Most of us would welcome a fresh look at the hoops we go through to carry out a transaction but it could throw more responsibility on consumers.

Moving the nation from going into debt to immediately acquire possessions rather than saving for financial independence in the future will require more teamwork.

It is too simplistic to talk only of the financial services industry&#39s “complicated products” – it was successive Governments who created numerous pension regimes or products. Remember, too, the Serps death benefit fiasco? Is anyone seriously saying that Government-designed Isas are easy for the public to understand?

It is, of course, not sensible to talk of inadequate pension provision and ignore the strains on pensions caused by FRS17 and increasing mortality rates. Opra tell us 6,700 schemes closed last year.

It is too convenient to talk about “expensive” products. Peter Spencer of Ernst & Young was recently quoted as saying that the cuts in tax credit for pension investments made in the 1997 Budget are responsible for a decline in savings. The Government raids pension funds to the tune of £5bn a year.

I would suggest that if the savings gap is to be narrowed, it will be achieved through a partnership consisting of all those who can encourage a savings culture. If we are to succeed, the Government, product providers, advisers, parents and teachers need to get real and start living and acting as though they realised that in debt management prevention is better than cure.

The industry has its role to play in that partnership by ensuring its products are accessible, easy to understand, competitively priced and that advice is available and reliable. Governments can act to clear away too much legislation, particularly in the pension area. It will not be a quick fix.

Len Warwick is managing director of Warwick Butchart Associates

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